Oil prices are moving up today because of a hurricane which may hit the Gulf of Mexico. It is a signal that it does not take much to move crude prices, which have fallen from $142 to $115, in the "wrong" direction again.
According to Bloomberg, "Crude oil rose for the first time in three days as a storm near Cuba prompted evacuations from rigs and platforms in the Gulf of Mexico, which accounts for about a fifth of U.S. production. " Any disruption in production brought on by the storm would be short-lived.
The news should remind those who see crude moving toward $100 a barrel that the system of supply and demand is fragile. OPEC is talking about cutting production now that prices have fallen. The conflict between Georgia and Russia could still disrupt the flow of oil from Georgian ports. Nigeria remains an extremely unstable country. Recent reports show that China's GDP is still growing at over 10%. That growth relies heavily on gas and diesel to transport exports to shipping facilities.
The drop in oil prices may drive a certain complacency about gas and heating oil prices. It could undercut the big move is the US toward "energy independence." But that would be a sucker play. There are too many pressure points that will keep oil prices high.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-18-2008 @ 8:55AM
Mike Sanders said...
We're nearing the end of the "peak oil," driving season, therefore, demand will only soften (in the US). Brazil, Russia, India and China are entirely different matters, but that's the world market, not the US sovereign oil, anyway... "just another BRIC in the wall."
8-18-2008 @ 9:12AM
Marty said...
There worried about a possible cat 1 storm ? Years ago this stuff was never a bother good thing they do not get snow out there. Any little thing now a days to drive up price. Remeber the gas station lines in the mid 70?
8-18-2008 @ 9:32AM
Mike Sanders said...
Marty, I remember all too well... I see a few angry people at the gas stations, these days, but there wasn't any anger in the seventies... IT WAS FEAR! We weren't just seeing higher prices, we were seriously afraid! I'd rather be paying more, than waiting for an hour to get gas, wondering if it wouldl run dry, before I got to the pump and sitting there in fear. Fear is one of the worst emotions that I know... I would not want to return to the seventies!
8-18-2008 @ 10:45AM
william lindblad said...
For what it is worth - In the 70's the rigs were smaller and inshore in the Gulf. Improvements in tech have allowed them to be much further offshore and tapping larger field areas. If all that happens is a storm up to cat 3 it will only result in a temporary shut down. However, anything that gets big, nasty and sticks around is going to raise hell with the equipment. That is the big concern - not to mention the refinery facilities that are on land.